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Commentary from Frost Investment Advisors | July 24 , 2023

Important Signal in Earnings Guidance, Rates Wrecking UK Housing, and Texas Slips

All Eyes on Guidance

With the sharpest drop since pandemic-related shutdowns in 2020, second quarter earnings per share for the S&P 500 are expected to fall 9% year over year. That’s a fourth consecutive quarter of declining earnings. With recent upside surprises in the economic data, this quarter is forecast to be the trough, with anticipated earnings rising sharply into the end of the year, and a 12% gain expected for 2024. This shift is predicated on the idea that profit margins will begin to rise through year end after declining over the past two years. Valuations are rich, with the forward PE ratio currently at 19.5, above five- and 10-year averages. Coupled with higher Treasury yields, the equity risk premium for the index sits near a record low. As earnings season continues, management guidance will be an important consideration for investors.

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